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Last week, I was very fortunate enough to be able to get into a conversation with Dr. Robert N. Castellano, president of The Information Network, based in New Tripoli, USA. It all started with a column, which he writes regularly in “The Street.” One of the recent colums of Dr. Castellano touched upon –- What could make solar hot again?

This first part will touch upon issues such as six reasons for cloudy solar skies and how to rectify the current oversupply situation in solar cell manufacturing, status of a-Si solar cell makers, crystalline vs. thin film capacity, and impact of prices.

As I’d asked iSuppli too, in one of my recent posts, I also quizzed Dr. Castellano on whether the previously committed capacity expansions have caused solar cell manufacturing oversupply? Also, why had this happened and how could this be corrected?

He said: “The problem will rectify itself when demand catches up with supply, which will take several years. Until then, suppliers are faced with lower prices and margins. I was the first to point out on March 5 2008, in my blog on Seeking Alpha in an article entitled “Contradictions in the Solar Industry” that “The solar industry is faced with a huge oversupply of solar panels planned for production in 2008, but no one seems to notice… or care. Shares in many solar companies such as Evergreen Solar), First Solar SunPower, and Suntech Power have surged with the booming solar market.”

He added: “On November 18, 2008, in another blog on Seeking Alpha entitled “Six Reasons for Cloudy Skies on the Solar Energy Industry” that the problems in the solar industry were the result of the following:

1. With oil at $60 a barrel, who cares about alternative energy? It is a short sighted view, but with the credit market crunch, who can get a loan to build solar plants anyway?”

2. The high price of oil in the past year was a catalyst for the development in other alternative energy sources, and not just solar! Advances in wind, geothermal and hydropower energy are reducing the cost of wind power to a point at which it is becoming competitive with traditional energy sources. Nuclear power plants — smaller than a garden shed and able to power 20,000 homes — will be on sale within five years, say scientists at Los Alamos, the US government laboratory, which developed the first atomic bomb. Among these alternative energy sources, hydropower and nuclear have the lowest carbon footprints (carbon dioxide produced during operation).

3. Spain, a huge buyer of solar, reduced its incentive program to aid buyers in 2009. In California, a seemingly green state, Prop. 7 was defeated in the November election with a whopping 65 percent of the voters saying NO. One reason: electricity consumers would pay 10 percent above the market rates for renewable power forever.

4. The spot market price of six-inch solar-grade wafers have fallen to $9 from a high of $12.50 in September. This bodes poorly for thin film makers and equipment suppliers. The thin film solar panel market and hence, the equipment market grew strongly because of the shortage of polysilicon. Now that polysilicon is abundant and lower priced, why make thin film panels with 8 percent efficiency when you get 16+ percent efficiency with silicon wafers?

5. “Utilization is at only 56 percent. Our analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.

6. The dollar has appreciated strongly against the euro by nearly 25 percent. Germany is the world’s largest PV market. US solar companies have had to adjust selling prices to generate sales, reducing profit margins.”

In this context, weren’t the solar companies doing enough to check all of these during the downturn of Q4-08? Even the 71 days to 122 days excess supply or inventory is huge!

Dr. Castellano said: “The solar companies were benefiting from the low price of polysilicon as a result of excess inventory in that sector. They were renegotiating contract prices with the poly suppliers and dropping prices. With money in place, they continued to build capacity well into 2009. All the factors discussed above took everyone by surprise (witness the stock market crash) and the recession has lasted much longer than initially forecast.

<span style=”font-weight:bold;”>Where does this place a-Si solar cell makers?</span>

How is all of this potentially setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?

He added that thin film cells are still less expensive to make and companies are working to improve their efficiency. Also, they appear to work at stated efficiency under lower incident light conditions.

“The issue is the economics in a solar farm where they are installed. The installation price is the same as a polycrystalline panel. Since the efficiency is lower and it takes more panels to reach the same wattage as polycrystalline, it also takes more hook-ups and frames during installation.

“If the panels move, there is another factor in the motors to move them. However, the production cost is lower than the polycrystalline panels. Oerlikon, expects its lines will deliver a cost of 70 cents per watt by the end of 2010 and has achieved an initial conversion efficiency of 11 percent, which comes out to about 9.5 percent of stabilized efficiency.”

There is still a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. Are there any chances of that starting to change any time soon?

Dr. Castellano said: “Until last year, Germany had been the world’s largest solar market thanks to its feed-in tariffs, which require utilities to buy all the solar energy produced at premium, government-set prices. As a result, analysts now expect Germany, which doesn’t have an annual cap like the one in Spain, to become the biggest market again in 2009.Germany installed 1.35 gigawatts of solar energy systems in 2008, and it could add another 1.5 gigawatts in 2009.

“Spain took the lead last year, but the government has since reduced the subsidies and capped the amount of energy that could be sold under the subsidy program. The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All of these forces have led to an oversupply of silicon panels.

“As governments — Germany and Spain were a driving force – in the solar industry’s run-up, they were a factor in the downturn. Once the recession is over and liquidity returns, they will mitigate the overcapacity, particularly as prices are so low and there is pent-up demand for new installations.”

<span style=”font-weight:bold;”>Impact of Q4 on overall prices and industry</span>

Another aspect worth examining is the overall impact of this (Q4) on overall prices and the industry.

Dr. Castellano said that silicon used to sell for more than $300 per kilogram on the spot market and $150 per kilogram for long-term contracts a few years ago. Silicon prices have since fallen significantly over the past year. In fact, the long-term contract price has dropped about 50 percent, close to the spot market price of $67 per kilogram, or about $0.50 per watt.

“Polysilicon panels are selling at $2.25 to $2.50 per watt from $4.17 in Q2 2008. We expect prices to decline further throughout the remainder of the year,” he noted.

In part 2 of this conversation, I will be discussing additional capacity in solar, new capacity in India, and of course, lessons to learn for the Indian solar industry. Watch this space, folks!

Dr. Robert N. Castellano, president, The Information Network

Last week, I was very fortunate enough to be able to get into a conversation with Dr. Robert N. Castellano, president of The Information Network, based in New Tripoli, USA. It all started with a column, which he writes regularly in “The Street.” One of the recent colums of Dr. Castellano touched upon –- What could make solar hot again?

This first part of our conversation will touch upon industry issues such as — six reasons for cloudy solar skies and how to rectify the current oversupply situation in solar cell manufacturing, status of a-Si solar cell makers, crystalline vs. thin film capacity, and impact of prices.
How to rectify the solar cell oversupply?

Since I’d asked iSuppli too, in one of my recent posts, I also quizzed Dr. Castellano on whether the previously committed capacity expansions have caused solar cell manufacturing oversupply? Also, why had this happened and how could this be corrected?

He said: “The problem will rectify itself when demand catches up with supply, which will take several years. Until then, suppliers are faced with lower prices and margins. I was the first to point out on March 5 2008, in my blog on Seeking Alpha in an article entitled “Contradictions in the Solar Industry” that “The solar industry is faced with a huge oversupply of solar panels planned for production in 2008, but no one seems to notice… or care. Shares in many solar companies such as Evergreen Solar), First Solar SunPower, and Suntech Power have surged with the booming solar market.”
Six reasons for cloudy solar skies

He added: “On November 18, 2008, in another blog on Seeking Alpha entitled “Six Reasons for Cloudy Skies on the Solar Energy Industry” that the problems in the solar industry were the result of the following:
1. With oil at $60 a barrel, who cares about alternative energy? It is a short sighted view, but with the credit market crunch, who can get a loan to build solar plants anyway?”

2. The high price of oil in the past year was a catalyst for the development in other alternative energy sources, and not just solar! Advances in wind, geothermal and hydropower energy are reducing the cost of wind power to a point at which it is becoming competitive with traditional energy sources. Nuclear power plants — smaller than a garden shed and able to power 20,000 homes — will be on sale within five years, say scientists at Los Alamos, the US government laboratory, which developed the first atomic bomb. Among these alternative energy sources, hydropower and nuclear have the lowest carbon footprints (carbon dioxide produced during operation).

3. Spain, a huge buyer of solar, reduced its incentive program to aid buyers in 2009. In California, a seemingly green state, Prop. 7 was defeated in the November election with a whopping 65 percent of the voters saying NO. One reason: electricity consumers would pay 10 percent above the market rates for renewable power forever.

4. The spot market price of six-inch solar-grade wafers have fallen to $9 from a high of $12.50 in September. This bodes poorly for thin film makers and equipment suppliers. The thin film solar panel market and hence, the equipment market grew strongly because of the shortage of polysilicon. Now that polysilicon is abundant and lower priced, why make thin film panels with 8 percent efficiency when you get 16+ percent efficiency with silicon wafers?

5. “Utilization is at only 56 percent. Our analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.

6. The dollar has appreciated strongly against the euro by nearly 25 percent. Germany is the world’s largest PV market. US solar companies have had to adjust selling prices to generate sales, reducing profit margins.”
Have companies been overlooking inventory problems?

In this context, weren’t the solar companies doing enough to check all of these during the downturn of Q4-08? Even the 71 days to 122 days excess supply or inventory is huge!

Dr. Castellano said: “The solar companies were benefiting from the low price of polysilicon as a result of excess inventory in that sector. They were renegotiating contract prices with the poly suppliers and dropping prices. With money in place, they continued to build capacity well into 2009. All the factors discussed above took everyone by surprise (witness the stock market crash) and the recession has lasted much longer than initially forecast.
Where does this place a-Si solar cell makers?

How is all of this potentially setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?

He added that thin film cells are still less expensive to make and companies are working to improve their efficiency. Also, they appear to work at stated efficiency under lower incident light conditions.

“The issue is the economics in a solar farm where they are installed. The installation price is the same as a polycrystalline panel. Since the efficiency is lower and it takes more panels to reach the same wattage as polycrystalline, it also takes more hook-ups and frames during installation.

“If the panels move, there is another factor in the motors to move them. However, the production cost is lower than the polycrystalline panels. Oerlikon, expects its lines will deliver a cost of 70 cents per watt by the end of 2010 and has achieved an initial conversion efficiency of 11 percent, which comes out to about 9.5 percent of stabilized efficiency.”
Crystalline vs. thin film capacity

There is still a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. Are there any chances of that starting to change any time soon?

Dr. Castellano said: “Until last year, Germany had been the world’s largest solar market thanks to its feed-in tariffs, which require utilities to buy all the solar energy produced at premium, government-set prices. As a result, analysts now expect Germany, which doesn’t have an annual cap like the one in Spain, to become the biggest market again in 2009.Germany installed 1.35 gigawatts of solar energy systems in 2008, and it could add another 1.5 gigawatts in 2009.

“Spain took the lead last year, but the government has since reduced the subsidies and capped the amount of energy that could be sold under the subsidy program. The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All of these forces have led to an oversupply of silicon panels.

“As governments — Germany and Spain were a driving force – in the solar industry’s run-up, they were a factor in the downturn. Once the recession is over and liquidity returns, they will mitigate the overcapacity, particularly as prices are so low and there is pent-up demand for new installations.”
Impact of Q4 on overall prices and industry

Another aspect worth examining is the overall impact of this (Q4) on overall prices and the industry.

Dr. Castellano said that silicon used to sell for more than $300 per kilogram on the spot market and $150 per kilogram for long-term contracts a few years ago. Silicon prices have since fallen significantly over the past year. In fact, the long-term contract price has dropped about 50 percent, close to the spot market price of $67 per kilogram, or about $0.50 per watt.

“Polysilicon panels are selling at $2.25 to $2.50 per watt from $4.17 in Q2 2008. We expect prices to decline further throughout the remainder of the year,” he noted.

In part 2 of this conversation, I will be discussing additional capacity in solar, new capacity in India, and of course, lessons to learn for the Indian solar industry. Watch this space, folks!

The results of India’s 15th General Elections are nearly all out! The people’s verdict — voting Dr. Manmohan Singh and Indian National Congress (INC) led United Progressive Alliance (UPA) to a second successive term!

Undoubtedly, this is a vote for stability, continuity and good governance. It is hoped, the nation will have good governance that can be devoid of external pressures of coalition partners. In some ways, the verdict is a vote in favour of the economic policies of the Indian government leading to continued liberalization as well.

This ‘pleasantly surprising’ result of India’s latest general elections has been welcomed overwhelmingly by leaders in India’s IT/ITeS, telecom and semiconductor industries.

Dr. Ganesh Natarajan, vice chairman and CEO, Zensar Technologies and former chairman, NASSCOM, says: “We welcome the results of the election, which are indicative of a stable government at the Centre. In the current global economic environment, it is important that India has a stable and progressive political environment that can focus on long-term policies for the sustainable development of the country, even as it takes decisive steps to immediately put the economy back on a high-growth trajectory.

“The Indian IT-BPO sector is both an engine and a catalyst for the development of the Indian economy and we are confident that the government will continue to partner with this sector for leveraging the benefits of IT for India’s domestic economy and through international trade. We also look forward to working with the government to promote inclusive growth and social benefits through the innovative use of IT. It is noteworthy that the biggest electoral process in the world — the globally-admired Indian elections — is through the use of EVMs, itself symbolic of the significance of IT for the country.”

According to Dr. Pradip Dutta, corporate VP and managing director, Synopsys (India) Pvt Ltd: “There is an element of decisiveness in the election results this time, which bodes well for the industry. An anxiety around a fractured and short-lived coalition has been replaced by a confidence that the new mandate will provide a government capable of delivering sustainable long term benefits for both economy and business.”

Jaswinder. S. Ahuja, corporate vice president and managing director, Cadence Design Systems (I) Pvt. Ltd, and former chairman, India Semiconductor Association (ISA), adds: “I am encouraged by the result. It is pro-progress. Also, the fact that Congress has a clear mandate should ensure that they can do the right things and make the bold moves that are needed at this time in order to ensure that India can claim its rightful place on the global stage, unencumbered by the compulsions of a fractured coalition.”

N.K. Goyal, president, Communications and Manufacturing Association of India (CMAI), chairman Emeritus, TEMA, chairman, CTIA, and vice chairman, ITU APT India, notes: “The country has given a clear message that it wants development and growth, and has rejected the approach of divide, religion, caste, etc. The long awaited liberalization agenda will get a boost now. The industry is sure that there would be stimulus in economy, growth in manufacturing and sustained policies for economic uplift.

“Infrastructure development will also get encouragement. India’s GDP growth will surpass 10 percent within the next three years. The telecom sector will see deeper penetration in rural areas, and broadband will match voice subscribers. We can expect 500 millions Internet connections by 2012.”

S. Uma Mahesh, co-founder CEO of Indrion Technologies, points out that UPA’s win is attributable to the following reasons:
* Rural support — unemplyment program (though it had more party orientation), and loan waiver (though it didn’t quite address all loaned people);
* Defocussed campaigning by other parties;
* Local factors (like ‘poor campaigning’, divided votes in AP);
* A ‘seasoned-company’ like approach by Congress that has to be commended, and the media support (similar for Democrats in US);

He adds: “Now the UPA has a chance of a lifetime — with no excuses. They should be able to do ‘real reforms’, and provide ‘real governance’ over the next four years at least, before getting into elections mode again. This should include — insurance reforms, labour laws, legal reforms, more liberal FDI, media reforms, and not to forget the rural sector, as well as the infrastructure.”

Quite correct! I am very sure that the new UPA government, which should be sworn in quite soon, will take all of the necessary steps to boost India’s IT/ITeS, telecom, semiconductor and solar photovoltaic sectors. There are several solar photovoltaic and semiconductor fab proposals that, I believe, need clearance as well.

Bundeep Singh Rangar, chairman, IndusView Advisors Ltd, the India-focused cross-border advisory firm, said in a statement today: “The government will have its task cut out with more than $700 billion worth of investments to be channeled in to India’s infrastructure, power, telecom and pharma sectors over the next five years to provide the country a strong foundation to achieve the aspirational growth of 10 percent.”

I would really like to see industry folks set their expectations before the new government at the center. If I can play a small role in carrying their messages, it would indeed be an honour!

Recently, iSuppli came out with a study on whether the current solar downturn will lead to a more mature photovoltaic industry! According to iSuppli, severe downturn in the global PV market in 2009 could actually have a more positive outcome for the global solar industry, yielding a more mature and orderly supply chain when growth returns.

Worldwide installations of PV systems will decline to 3.5 Gigawatts (GW) in 2009, down 32 percent from 5.2GW in 2008. With the average price per solar watt declining by 12 percent in 2009, global revenue generated by PV system installations will plunge by 40.2 percent to $18.2 billion, down from $30.5 billion in 2008.

“An ever-rising flood of market participants attempted to capitalize on this growth, all hoping to claim a 10 percent share of market revenue by throwing more production capacity into the market. This overproduction situation, along with a decline in demand, will lead to the sharp, unprecedented fall in PV industry revenue in 2009,” he added.

What about new entrants?
I quizzed Dr. Wicht how this downturn would lead to a more mature PV industry and what about the new entrants?

Dr. Wicht said: “We expect that the solar industry will invest more softly. The years 2007/2008 were special. Each of the hundreds of suppliers were ready to invest to reach 10 percent market share. This is not likely to repeat.” Interesting! “Also, the new entrants will invest more modestly and closely linked to fixed customer orders,” he added.

Role of FIs in solar
Are financial institutions paying that much importance to solar, especially in places such as India? This is an issue that was also raised and discussed at the recently held SEMI India solar/PV paper launch.

According to Dr. Wicht, the financial investors are definitely looking into solar, mainly in Europe and US. “PV in India is still at the very beginning. From my experience, there is not yet much attention of financial investors for PV in India,” he noted.

Off-grid or grid connected apps?
Turning the discussion to off-grid vs. grid connected applications, I sought Dr. Wicht’s advice on the route that should be followed. Again, this topic was discussed during the SEMI India meet early this month. Hence, the interest for India in this field is significant!

Dr. Wicht highlighted: “Installations for the off-grid remains a small portion in terms of the sold modules (MW), about 5 percent. The off-grid system selling might be a good way to start in places such as India. For cell and module production, on-grid is where the volumes are needed.” Hope the Indian solar photovoltaics industry takes note of this valuable advice — and it holds good for other regions as well.

I also asked him regarding a good low carbon growth strategy for developing countries. Dr. Wicht said that depending on the place, it could be a combination of wind, solar and biomass.

Compensating for Spanish whiplash!
According to iSuppli’s study, the single event most responsible for the PV market slowdown in 2009 was a sharp decline in expected PV installations in Spain. Also, beyond Spain, the PV market is being adversely impacted by the credit crunch.

Therefore, why won’t attractive investment conditions in other some countries compensate for the Spanish whiplash?

Dr. Wicht said: “The investigated countries start from a low level of installations and show long, administrative procedures, limits of feed-in tarifs and reduced capital access. They simply cannot compensate the 2.6GW of Spain in 2008.”

Finally, what is likely to happen after the shakeout or fall in the coming years? He added: “System demand will grow stronger from H2-2010, absorbing the inventory, which has been built up in 2009 and 2010. From 2011, demand for modules will rise. It might pick up quickly. Then, companies, which are able to supply on short notice/(flexibility) can gain market share.”

Let me see if I can convince Dr. Wicht to visit India and share his insights with the Indian solar/PV industry. Last, but not the least, thanks Jon!

The severe downturn in the global Photovoltaic (PV) market in 2009 actually could have a positive outcome for the worldwide solar industry, yielding a more mature and orderly supply chain when growth returns, according to iSuppli Corp.

Worldwide installations of PV systems will decline to 3.5 Gigawatts (GW) in 2009, down 32 percent from 5.2GW in 2008. With the average price per solar watt declining by 12 percent in 2009, global revenue generated by PV system installations will plunge by 40.2 percent to $18.2 billion, down from $30.5 billion in 2008.

The figures present iSuppli’s forecasts of global PV installations in terms of gigawatts and revenue.

“For years, the PV industry enjoyed vigorous double-digit annual growth in the 40 percent range, spurring a wild-west mentality among market participants,” said Dr. Henning Wicht, senior director and principal analyst for iSuppli. “An ever-rising flood of market participants attempted to capitalize on this growth, all hoping to claim a 10 percent share of market revenue by throwing more production capacity into the market. This overproduction situation, along with a decline in demand, will lead to the sharp, unprecedented fall in PV industry revenue in 2009.”

However, the 2009 PV downturn, like the PC shakeout of the mid 1980s, is likely to change the current market paradigm, cutting down on industry excesses and leading to a more mature market in 2010 and beyond.

“The number of new suppliers entering and competing in the PV supply chain will decelerate and the rate of new capacity additions will slow, bringing a better balance between supply and demand in the future,” Wicht said.

Blame it on SpainThe single event most responsible for the 2009 PV market slowdown was a sharp decline in expected PV installations in Spain. Spain accounted for 50 percent of worldwide installations in 2008. An artificial demand surge had been created in Spain as the time approached when the country’s feed-in-tariff rate was set to drop and a new cap of 500 Megawatts (MW) loomed for projects qualifying for the above-market tariff. This set a well-defined deadline for growth in the Spanish market in 2009 and 2010.

While the Spanish situation is spurring a surge in excess inventory and falling prices for solar cells and systems, this will not stimulate sufficient demand to compensate for the lost sales in 2009. Even new and upgraded incentives for solar installations from nations including the United States and Japan—and attractive investment conditions in France, Italy, the Czech Republic, Greece and other countries—cannot compensate for the Spanish whiplash in 2009.

The Spanish impact will continue into 2010, restraining global revenue growth to 29.2 percent for the year. Beyond Spain, the PV market is being adversely impacted by the credit crunch.

“Power production investors and commercial entities are at least partially dependent upon debt financing,” Wicht noted. “Starting in the first quarter of 2009, many large and medium solar-installation projects went on hold as they awaited a thaw in bank credit flows.”

After the fallAfter 2010, the fundamental drivers of PV demand will reassert themselves, bringing a 57.8 percent increase in revenue in 2011 and similar growth rates in 2012 and 2013.

“PV remains attractive because it continues to demonstrate a favorable Return on Investment (RoI),” Wicht said. “Furthermore, government incentives in the form of above-market feed-in-tariffs and tax breaks will remain in place, making the RoI equations viable through 2012. Cost reductions will lead to attractive RoI and payback periods even without governmental help after 2012.”

Furthermore, lower system prices will open up new markets by lowering incentives and subvention costs. The lower the PV system prices are, the lower the incentives will have to be. Developing regions will be big the beneficiaries of these lower prices and thus will grow faster than the global average, Wicht said.

Now then, this will make a very interesting read! Back in October 2007, I had discussed the timing and the need for a silicon wafer fab in India, in-depth, with Anil Gupta, managing director, India Operations, ARM.

We have come a long way since then! There was all the hype last year about SemIndia’s fab, which never really did happen, and eventually, BV Naidu moved on! Then came the rush to solar fabs. Recently, when I blogged on how a Qimonda buy could be good for India, I am told that it is really outrageous. No problem, it is merely a suggestion.

At times, I have got the feeling whether the Indian semiconductor industry is losing its way! However, when I see all around, it is hale and hearty, and business as usual — fabs or no fabs!

It was interesting to meet up again with Anil Gupta of ARM, and to find out what he thought about what I thought!

Starting with an old question, whether India has the capability to sustain or even build a product development ecosystem? Gupta said: “We need the following for this:
* Entrepreneurs committed to product development and willing to take that risk.
* Investors willing to take risk on product development companies.
* Consumption (this will happen as the economy improves any way).
* Deep enough technical/technological knowledge/know-how to put reasonably competent end products together (It exists. Examples like Sukam, Tejas and other are there).

Indian fab story dead and buried
Turning focus on fabs, is the Indian silicon wafer fab story completely dead and buried now? Gupta notes: “When TSMC says they are running at only 38 percent capacity, one can imagine what the rest of the fabs must be going through. In any case, the Indian fab story was a longer term story and the current economic climate actually makes it further and further remote. So yes, it is dead and buried now!”

Wow! India probably flattered to deceive! However, I am an optimist, and hope that one day, India will have its own silicon wafer fabs!

Gupta adds: “What worries me now is the glut of the solar/PV fabs. By the industry estimates, solar/PV is a viable option only when the price of oil is >$100 per barrel (oil is at $40 per barrel now). This means, there would be challenges for the solar cell industry too! One can only hope that the economy picks up growth soon enough and sends the price of oil higher so that solar becomes a viable option.”

Again, this is a concern I have as well. The rush toward solar is good, but then, is this what the Indian semiconductor industry really needs? Where’s all that talk of developing silicon and product companies? You simply cannot equate the two — semicon and solar! You can’t have a policy, and then ignore the main crux either, and simply go for the ones that are easily attainable! It does not project a good impression, or maybe, I am somehow wrong in my assessment. Hence, my feeling that the industry could be losing its way somewhere!

However, Gupta feels that’s not really the case! What has been working until now, still continues to work!! “Our strengths are design and verification. We will continue to be in demand for that. The other pastures we explore, there are a lot of uncertainties,” he adds.

“The challenge is to pick the right pasture where the grass remains green even in the summer. This is not easy to find and does require that we bet on some of them and learn through the experience,” he advises.

How can India really buzz?
What now needs to be done to get the semiconductor industry in India really buzzing? Surely, local consumption is key. Local consumption would hopefully foster electronic product innovation just like products by two-wheeler manufacturers and the Tata Nano.

“The current initiatives in the industry for rural applications are also quite interesting. I am optimistic that some good offerings will come out of this. While these may not be specifically from a “semiconductor” perspective, at least at the “system” level these would make sense,” says Gupta.

What India NOW offers to semicon world?
What does India NOW offer to the semicon world, in these times of a global recession?

The Indian economy is still mostly internal consumption oriented, as opposed to exports oriented. This is very different from the economies of island nations like Taiwan, Korea, and Japan, which are very heavily export oriented.

In a recession like the current one, these predominantly export-oriented economies experience a far greater crunch than the others. Thus, as long as products are being sold in Indian markets at the right price points, there would be consumption.

Gupta says, “This time around, the world would come out of recession mainly driven by Asian countries, India being one. People in the industry that I talk to tell me that as the worst is over in this crisis, and as things begin to pick up, India will once again be the beneficiary of a lot of work moving here. However, my personal view is somewhat different.

“I believe that the last round did witness this phenomenon mainly because it was the honeymoon period. But by now, the honeymoon period is over and the India centres of these companies are working hard to reach a level where they become “mission critical” to the businesses of their companies.

“The journey hasn’t been very easy for multiple reasons. And by now, the cost differentials also do not look as attractive as they did before. Hence, what work comes here would come only after a careful assessment and very selectively (not by leap of faith).”

I did blog about how Qimonda could be a good buy for starting a memory fab in India. You have all the facts in front of you! My question to the Indian semiconductor industry is: should we revive the call for having a silicon wafer fab in India, post SemIndia and post recession?

I was very fortunate to attend a webinar on solar PV a couple of days back, thanks to iSuppli, USA. The webinar looked at:

* Polysilicon — what is going on in the market?* Cells and modules — where will the prices go?

Dr. Henning Wicht, senior director and principal analyst, iSuppli, made it clear that the intention was to show what’s coming out of primary industry research.

He said: “We believe that solar is a fantastic market. It has been growing over the last four years by revenue. It will continue to grow! There are not many industries with a growth path like that! However, in last the 18 months, the supply has been disconnected from demand.”

This is exactly the point iSuppli addressed in its webinar. Dr. Wicht was accompanied by Stefan de Haan, senior analyst, photovoltaics, iSuppli.

Polysilicon: What’s going on with supply and pricing?If you looked at the global solar PV industry, many plants are under construction, and there are huge capacity expansion plans. There has been a dramatic decrease in production. In 2008, iSuppli estimated total production of solar PV at 60,000 metric tons. In 2009, about 100,000 metric tons will be produced!

What are the reasons for this supply situation? In 2005-06, the high margins of this industry attracted several newcomers. The cycle time to ramp up a polysilicon plant is 24-36 months, and including another 12 months to get finance, it takes about four years.

He said: “The decisions taken in year 2005-06 are coming to the market now. This is also why we see the big ramp in 2009-10. This is also the reason why the industry will have big difficulties to react on a short term notice. The polysilicon industry is a big super tanker, which has difficulties to maneuver on short term.”

Looking at the demand side of things, iSuppli showed a graph where the two curves — polysilicon supply and polysilicon demand meet, or rather cross, in early 2010. From that point on, the supply line passes the demand line. “That means, from that time onward, we definitely see prices for polysilicon decreasing,” he said.

What will happen in 2009?The key point to note is that the ramping rates of polysilicon and solar cells are completely different! The ramping rate of polysilicon is much steeper, than on the cell side. Polysilicon is more than doubling, while the cell industry is growing at 34 percent.

According to Dr. Wicht, the gap between demand and supply is already shrinking fast in 2009, which will lead to a price decrease in 2009.

Coming to prices, the polysilicon market boasts two kinds of prices — long term and spot market. According to Dr. Wicht, the long term prices are already decreasing from around $100/kg in 2008, and it is expected to be around $80/kg in 2009.

On the other hand, the spot market price peaked in 2008 at around $400/kg. Now, it has already dropped. It will continue to drop, far beyond today’s long term contract price, which will then, from 2010 onward, make up another round of discussion. This is because companies might tend to get out of their long term contracts to secure their silicon on the spot!

Summarizing, he said that polysilicon production will increase heavily. Next, supply will pass demand from 2010 onward, and then the industry will enter the oversupply situation for the next three to four years. The polysilicon industry will also react. In fact, iSuppli anticipates a recent announcement from a solar PV company to expand production capacity would be the last for quite a while!

What about projects on the way? These projects have to come on to the market and many of those will! This is precisely the reason why the industry will see silicon passing solar cells in capacity over the next few years.

Stefan de Haan added that the output of the PV modules industry will grow. The total module prod will likely grow to 11GW this year and to 20GW in 2012. Thin film modules will continuously gain market share and it probably account for 1/3rd of the total market by 2012. Production of crystalline cells will run in parallel. It is likely to reach 9GW for 2009 and 18GW for 2012.

Commenting on the competitive landscape, he added that many new players would be entering production in 2009, especially in the thin film business. “However, the current leaders — QCells, Suntech and First Solar — will increase their edge over the competition in terms of absolute production volumes,” he said.

In general, it is a good thing that the industry is growing and that all of this capacity is coming online. However, this raises the question: can demand can keep up with the supply?

According to iSuppli, in 2009, the installation market will be flattening. In the sense, iSuppli projects that 4.2GW will be installed this year, or about 10 percent growth. However, this growth is much smaller in comparison to the previous years. Some of the reasons for slower growth in 2009 include changes in sustained feed-in tariffs and the global economic slowdown.

Hann added, “In H2-2010, module demand will probably return to the previous growth rates, of more than 20 percent per year.”

Combining demand and supply, there is a massive oversupply of modules that has already been building up since early 2008. Back in 2008, this did not impact on the module prices as there was short term heavy demand from countries like Germany and Spain, from project developers and installation companies, etc. So, this was not noticeable earlier. However, in 2009, the oversupply situation is quite serious!

As a consequence, many suppliers will not be able to react to this situation in the short term. They will still need to run their factories to try and generate some revenue and satisfy the industry. Many had bet on some strong demand coming from USA and also China.

This year, the module prices will decline. Consequently, the declining prices will also create some additional demand. However, for the next two years, this fundamental oversupply situation will not change.

How far will prices drop?So, what are the message for 2009? First, crystalline module prices will drop to about $2.50 per watt, and second, cost is going to be the differentiating factor! This was a point emphasized strongly by the iSuppli analysts.

Further, how should companies manage this situation, where supply is disconnected by demand? According to Dr. Wicht, there is 11.1GW of module supply vs. 4.2GW of installations. “We do not see that the demand is elastic and that everything will be good after the end of 2009. The gap is too large between demand and supply, and will last till end of 2010.”

Installation capacity will surely become a bottleneck. There will be falling prices for silicon, as well as solar cells and modules. Also, the demand is not that elastic enough to absorb all modules produced.

Therefore, given this situation, what are the options for success, rather, what are the ideas to re-orient the solar PV business?

The first option could be to shut down 50 percent of production till price recovers. However, this is not a realistic option. Another could be to put expansion plans on hold. Yet another option for producers would be to become the best in class in production cost, an option, which is excellent, but difficult!

Probably, the best option would be for makers to integrate downstream. This includes new demand simulation in established markets as well as developing new markets.

Dr. Wicht said: “Anticipating bottlenecks are key for solar. The next bottlenecks are the bureaucracy and installation capacity. The production capacity would not be influential. Production cost and downstream integration are key.” He advised solar PV producers to monitor their PV market demand and supply situation regularly.

Greetings, dear readers and friends, in the new year. May you all have all the success and prosperity in 2009!

An eventful year in semiconductors has passed by us. For me, personally, it has been a tremendous 2008, ending with Electronics Weekly of UK selecting my blog (Pradeep Chakraborty’s Blog) as the world’s best in the Electronic Hardware category.

Lot of people have asked me since, how it feels to be a world champion! Well, I do feel elated! However, one point, more of the congratulatory notes have come from overseas, than from India. Perhaps, it is an apt indicator of how semiconductors is perceived in India — though, I may be wrong.

Friends have also asked me how I’ve managed to blog on such a difficult subject sitting in India. Simply put: It has not been easy!

First, I’m just a simple person, and not some brand name. Second, my blog does not represent any large, well known media house, or a big brand semiconductor magazine. Hence, maintaining a semicon blog, with the help of contacts from all over the world has been tough, at times. Why, some folks, with whom I wished to speak with, never even responded to my emails and requests. Quite understandable!

Third, I’ve only managed to blog, when I have the time, unlike many other great bloggers who post regularly (or daily)! Fourth, there have been several instances, where my location has been my weak point. I was unable to blog on several instances simply because I had no way of reaching people whom I wished to speak with, while sitting in India. And, as I said, I did get cold snubs on several instances! :) As a result, I could not present my views at specific instances, even though I dearly wanted to!

However, the unconditional and loving support and encouragement of my family, friends, well wishers, industry leaders and loyal readers such as you have helped overcome all of these deficiencies. It is only because of these people that I’ve managed to come this far! I hope each one of you continues to have faith in me. I shall try my best to provide you with the best information (hopefully) the global semiconductor industry has to offer.

To start off the new year, may I present, what I feel, are the top blog posts on semiconductors during 2008, as a review for the past year.

Being indisposed at the start of 2008, I only managed to pick up speed from April onward. As the year progressed, the Indian fab story with SemIndia started worsening, before finally disappearing, even as fabless India held on sttong, as did the fortunes of the global semiconductor industry, which incidentally, did look quite good till September last year.

I have arranged the blog posts, from January to December 2008, so they will present a better picture of how 2008 behaved! These posts are set in no particular order or preference, otherwise. Some of you may have your own favorites, so kindly let me know, in case those haven’t made the list.

DEC 2008My blog is the world’s best!Semicon outlook 2009: Global market could be down 7pc or moreAltera on FPGAs outlook for 2009Solar sunburn likely in 2009? India, are you listeningOutlook for solar photovoltaics in 2009!

I found it difficult to select the Top 10 posts. If any one of you can draw up such a list, it’d be great!